Melbourne Housing Market Proves Resilient Against Financial Crises
By Kristie Kwok on 19 Dec 2013
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Melbourne’s property prices have trended upwards over the last thirty years, showing media talk of housing pains is overzealous.
Just over two years ago, the talk of the media was all about how Melbourne’s property market would remain in the doldrums for the next decade.
In a typical statement, Shane Oliver, AMP Capital’s chief economist, warned of the impact of heightened consumer caution on Australian property prices in the post-GFC environment:
“The global financial crisis has reminded everyone that you can lose your job and that house prices can go down. They’ve seen this happen in the US and UK. It’s keeping buyers side-lined. The market is well and truly in the doldrums.”
“Just over two years ago, the talk of the media was all about how Melbourne’s property market would remain in the doldrums for the next decade.”
Two years on, Melbourne’s housing market looks a picture of health. Properties are selling fast, house prices are rising and auction clearance rates are strong.
On a national level, Australian property trends also show similar upward movements.
Graph of Melbourne Property Trends Proof of its Strength
Whilst significant financial events will almost always lead to media speculation about a potential fall in house prices, the below graph, attained from A Guide to Property Values, is a telling reminder that the Melbourne housing market is strong and resilient against financial shocks.
Property trends in Melbourne continued moving in a positive direction over the last thirty years, even though several financial crises had occurred and wiped out gains on global stock markets.
Source: A Guide to Property Values, 2012
These financial events include the 1987 stock market crash, the recession of the ‘90s, the ASEAN crisis in 1997, the Dot.com crash in 2000, the 9/11 attacks in 2001, and most recently, the GFC in 2008.
Melbourne Housing Market Not Immune to Financial Shocks
Of course, Melbourne’s property trends are also prone to fluctuations. Its ability to withstand the impact of financial shocks however, points toward key fundamental influences that are different from the drivers of financial markets.
It is worth pointing out as well that intervention by the Reserve Bank of Australia through its interest rate decisions and government assistance programs given to first home buyers would have helped to sustain price levels throughout this time.
Population Growth Drives Price Trends
Factors often seen to drive property trends include the local economy, interest rate, unemployment rate, population growth and housing affordability.
Of these fundamentals, the key strength of the Melbourne housing market lies in its population growth.
“Melbourne’s property trends are prone to fluctuations…”
According to the Australian Bureau of Statistics (ABS), in the five years to June 2009, Melbourne experienced population growth at an average annual rate of two per cent per year, which was higher than any other city or region in Australia.
The ABS has also predicted that Melbourne will overtake Sydney to become Australia’s biggest city in 40 years’ time.
As long as population continues to grow at a similar rate, it is difficult to see significant falls in future demand for housing in Melbourne.
